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SOFIA, May 24 (Reuters) - High levels of non-performing loans remain a risk to Bulgaria's financial system more than two years after the collapse of its fourth largest lender, the International Monetary Fund (IMF) said on Wednesday.
The overall financial system has stabilised since the demise of Corporate Commercial Bank, the IMF said, an event that triggered the country's worst financial crisis since the 1990s.
But remaining weaknesses in some banks, shown up in stress tests and an asset quality review last year, are another possible threat, it added in an assessment of the country's financial situation.
"The financial system stabilized following the 2014 bank collapse, reflecting the initial reforms, and the overall significant capital and liquidity buffers," the IMF said in a statement.
"Nevertheless, risks remain, including for some banks that showed weakness in the authorities' asset quality review and stress test, and for the system because of high non-performing loans (NPLs)," the IMF said.
Bulgarian Central Bank Governor Dimitar Radev welcomed the assessment. "We have certain progress, but much more remains to be done," he told a financial forum.
Bulgaria's central bank has told the country's third largest lender, First Investment Bank (Fibank), to raise about 206 million levs ($117 million) in additional capital after last year's asset quality review and stress tests.
Fibank has said it has already taken steps to ensure the funds and has hired Citigroup to advise on strategic options that could involve attracting new core investors.
The IMF welcome the steps the central bank has taken to tighten controls over lenders, but urged more work to develop a working financial safety net. "Among the concerns are that resolution planning for larger domestically owned banks is incomplete, and, in the practical sense, an emergency liquidity assistance facility would not be available if needed," it said.
The IMF also urged a more targeted strategy towards bad loans. The high non-performing loans in the Balkan country's lenders stood at 13.7 percent of total loans as of June 2016, compared to an EU-weighted average of 5.5 percent. (Reporting by Tsvetelia Tsolova; Editing by Andrew Heavens)